Insolvency Service Policy Formulation: New Insolvency Rules - Tinker with the status quo like Manson or reform completely like Romilly

The Insolvency Service (IS) have published a number of new documents on insolvency law and policy. Arguably the most important is that which relates to the proposed new Insolvency Rules (IRs). The IS are seeking views on how the IR reformulation should progress. Before noting their discussion document I thought it might be appropriate to cite some interesting quotes on the sister subject of company law reform that might be considered relevant. Writing in in the context of company law reform Professor Manson ((1890) 24 LQR 428, at 428-429) once observed: “The English mind, by a curious paradox, is constitutionally distrustful of change while full of reforming energy . The result is a superabundance of legislation, but of a tentative and temporising kind, unscientific, crude, confused; the despair of judges and all who value law as a science.”

Of company law reformers generally it has also been noted that, "“for a lawyer his appearance was unusual. He had a remarkably shaped cranium” (Lord Cohen (1888-1973)) and of the Earl Loreburn (1846–1923 - Lord Chancellor) it was once said that in addition to being a company law reformer he was also, "A stout, bluff, good-natured man, addicted to his cup of tea and his clay pipe, with a strong physique and a large head (which critics called ‘swelled’)." I am sure that the policy people at the IS do not have unusually shaped craniums, swelled heads or tea and pipe habits. They do however have a desire to know about stakeholders' views on the new IRs. In particular the IS note (my bold emphasis):

"New Insolvency Rules  

This letter invites your views upon whether work we have been undertaking to re-write the Insolvency Rules(“the Rules”) should be continued or whether an alternative option of making only limited and necessary amendments to the existing 1986 Rules should be pursued. 

Background

Over the last few years we have been working  on a project to modernise the Insolvency Rules 1986 (“the 1986 Rules”). Amendments made to the 1986 Rules in April 2009 and April 2010 have included those to allow greater use of electronic communications(including websites), modern channels of publicity and advertising, and greater transparency and possibility of challenging fees charged by insolvency practitioners. 

As the final phase of this work we have been planning to put a new set of Rules into force (in October 2012) to replace the 1986 Rules. Our lawyers have now completed around a third of the drafting but before finalising the remainder we would like to engage with stakeholders and invite feedback not only on the proposed structure of the new Rules, but also more generally on the value of having them. The parts currently in draft - what we have called ‘the common parts’(see below)- have now been published on the Insolvency Service’s website along with tables of destinations and derivations, and brief explanatory notes to explain key changes within the drafting...

Although stakeholders have hitherto been supportive of this re-write, some have recently expressed concern that it will impose significant transitional costs on them as a result of the re-numbering of existing provisions which will result. Some have said they would like to see a delay before putting the new Rules in place. This is not an option for us because while we have the resources now to complete the task, given the implications of the Spending Review it is improbable that we could resurrect the project if we do not complete it now.   

Benefits of the Re-write

We consider that over time the short-term transitional costs users will experience will be far outweighed by the benefits that will result from new Rules. These benefits include:- 

1. Consolidation. The existing rules have been amended at least 22 times since they were put into force in 1986 and this number will increase further over time. New rules will: 

• Establish a new base set of Rules against which to make future amendments.

• Reduce the number of statutory instruments relating to the rules of insolvency procedure from 23 to one, thereby making the law itself more accessible.

2. Drafting Clarity. The origins of some of the rules are very old indeed and are in need of modernisation and alignment. We can only do this by re-writing the rules in their entirety. We will:  

• Create legal certainty by removing the many internal inconsistencies which exist within the drafting and language used. 

• Reduce the inherent complexity within the rules to help users of insolvency law gain a better and clearer understanding of the way in which the rules operate. 

• The numerous requirements to send and serve documents and the various ways in which time limits operate within the rules is an example of this complexity. The new rules will distinguish between documents (such as statutory demands and petitions) which must be served with a degree of formality, and other documents and information which may be sent by any effective means. For the latter, we will create new provisions to set out when documents and information sent by the various means are to be treated as delivered.

3. Better Structure. We will make it easier for users to navigate their way around the rules and will improve usability by:

• Introducing ‘common parts’ whereby rules which are common to more than one procedure will instead be brought within their own part within the rules. Each of the proposed common parts have now been published to give stakeholders an opportunity to comment on structure and points of detail. 

• Providing a full write-out of the rules applicable to each of court winding-up, members voluntary winding-up and creditors’ voluntary winding-up. This will remove the current difficulty users can encounter in needing to identify which rules or sub-rules apply to which type of winding-up.  

4. Policy Change. Having amended the rules substantively in April 2010, further policy changes will be limited. We will though:    

• Introduce measures that will result in financial savings or which might otherwise reduce costs. 

• An example of this is a change to remove the mandatory requirement for documents delivered by post to be sent 1st class (which  arises because Part 6 of the Civil Procedure Rules now applies to documents sent under our rules). This will bring substantial cost savings. 

• Make numerous smaller amendments which, over time, will reduce administrative and financial burdens on insolvency practitioners and creditors. The explanatory notes published alongside each of the draft parts we have put on our website detail some of these changes. Similar amendments will be introduced for parts 1 to 10, which are still to be finalised. 

5. Prescribed Forms. Mandating the use of paper forms will, over time, act as a barrier to electronic delivery. We will:-

• Review whether all the forms currently prescribed within Schedule 4 of the rules need to be prescribed as statutory templates.

• In every case where information must be sent from one person to another, ensure that the relevant rule makes it explicit as to what information must be provided. 

6. Essential Amendments. 

• We will put right the rules to make a number of corrections which have become apparent since the April 2010 amendments were put into force. 

• These amendments will remove legal uncertainty and in some cases will remove burdens on users of the law.

The Alternative Option

Having regard to what some stakeholders have recently told us about the re-write, I welcome wider views on whether instead of new Rules we should just amend the existing 1986 Rules to deal with the essential amendments (see point 6. above). There might also be scope for certain other changes to be included which might reduce costs, including perhaps the policy change mentioned to allow most postal notices to be sent other than by 1st class. 

Should we decide to pursue this secondary option, the relevant amendments to the 1986 Rules would take effect by October 2011. Thereafter, the 1986 Rules would remain with us for some years to come.  

Questions

It would be helpful if you would please let me have responses to the following questions:

1. Would you prefer to see a new set of Insolvency Rules or, instead, the Alternative Option of only essential amendments to the 1986 Rules? 

2. If you favour the Alternative Option, do you think that the existing rules are fit for purpose for the medium-term (say the next 10 years)?

Questions 3 to 6 relate to the proposed new Rules:

3. Do you consider that the proposed new structure will bring benefits to the user in terms of clarity and ease of use?  

4. Do you feel that the longer-term benefits of a new set of Rules outweigh the short-term transitional costs of implementing the new Rules? If so, are you able to specify what those benefits are and can you put a financial value upon them by reference, say, to efficiency savings you would anticipate?  

5. If you think there will be costs or burdens placed upon you or your firm by the new Rules, would you please identify what the nature of those costs are and, if possible, provide an approximation of what the costs will amount to to you in each of those areas?

6. Do you agree that unless there is a regulatory need for it, there is no need for any form to be prescribed within the Insolvency Rules, provided there are acceptable templates which meet the requirements of the rules available on the Insolvency Service’s website?

7. Please comment on anything else you would like to see either the new Rules or the Alternative Option of essential amendments to the 1986 Rules deliver. Should we decide to push ahead with the new Rules there will be a further opportunity to comment on points of detail within the drafting.  

All responses should be sent to The Insolvency Service Policy Unit at policy.unit@insolvency.gsi.gov.uk or by post to The Insolvency Service, Zone B, 3rd Floor, 21  Bloomsbury Street, London WC1B 3QW  by Monday 6 December 2010..."

It will be interesting to see if responses are reformist - i.e. “supporting or advancing gradual reform rather than abolition or revolution” (OED), or if a more Benthamite like approach to reform will be adopted. In relation to company law reform the late Professor Pettet once opined: "There was a tendency to remain focused on specific problems which had become apparent rather than embarking on a wholesale reassessment of fundamental principles” ((1998) Co.Law, vol.19, no.5 at page 134). Will a Romilly like robustness be adopted? Let us wait and see. These are very interesting times! Some commentators will hope that a Romilly like approach is the way forward otherwise our current insolvency laws may suffer the same perception as those of the late 19th century where it was observed: “our commercial code, so far as bankruptcy administration is concerned, is a national disgrace, and we are compelled to exclaim, with Hamlet, “Reform it altogether”. (from: Editorial. Anomalies of the Bankruptcy System. The Bankers’ Magazine and Journal of the Money Market. Vol.13, September, 1853, pp.609-615, at page 615.)

Picture Credit: http://www.insolvency.gov.uk/